An excise tax would give states a role in fighting climate change

The United States Environmental Protection Agency is set to release new guidelines under the Clean Air Act that will aim to reduce greenhouse gas emissions from existing power plants. Image: Shutterstock

By John K. Delaney

Monday 2 June 2014

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Next week the Environmental Protection Agency will take an important step in addressing the ever-increasing threat of climate change caused by greenhouse gas emissions when it releases new guidelines under the authority of the Clean Air Act. These guidelines will apply to existing power plants, which produce more than a third of the United States’ greenhouse gases.

Climate change is the environmental challenge of this generation, and it is imperative that we act before it’s too late. While some politicians argue over whether to believe scientists’ almost overwhelming consensus on climate change, the business sector is a believer and is wisely planning ahead. This year, Exxon Mobil began incorporating a price on carbon emissions into its long-term business model. Just last month, we learned that Standard & Poor’s is including resiliency to climate change in its most recent modeling for sovereign credit ratings.

Addressing climate change and positioning the United States as the leader in advanced energy should be a top priority for our country and our economy, and I applaud the Obama administration for the steps it is taking. For better or worse, however, we can expect a long period of gathering comments and revisions to the EPA’s guidelines, in addition to legal challenges.

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Many have criticized a federal carbon tax, saying that it would increase energy costs. Some continue to oppose it even when that revenue would be used to reduce other taxes in what’s known as a tax swap

To guarantee flexibility, Congress should pass legislation to expand the options available to states, helping us achieve our environmental goals in the most effective market-based manner. In May, I put forward the State’s Choice Act, which would give states the option of imposing a state-level excise tax on carbon emissions instead of designing and implementing an emission reduction plan mandated by the EPA.

First and foremost, this would give states more flexibility. The option would be entirely theirs; they could take it or leave it. Second, this option would allow states both to avoid regulatory costs and to generate new revenue; the resulting funds could be used for the good of the state, whether it be to lower taxes or invest in infrastructure and education. Lastly, the act would give states an incentive to be laboratories for proving that the ­market-based approach of a carbon tax is the right answer to address climate change, to improve public health and to put all energy sources on the equal footing necessary to spur the technological innovations in clean energy that will prove a boon to US economic competitiveness and growth.

For industry, it is also preferable to have a predictable price path rather than regulatory uncertainty. My bill would set the initial rate of the state excise tax at $20 per metric ton of carbon-dioxide-equivalent emissions and increase the fee annually at a rate of 4 percentage points above the rate of inflation. That way, businesses could plan five, 10 or 20 years into the future knowing what their energy costs will be. With the kind of regulations the EPA is proposing, however, the costs of compliance can be volatile, especially if caps are involved and regulations are updated periodically, creating additional rounds of negotiations, comment periods, court cases and general uncertainty — all of which could prevent businesses from investing in our economy.

Many have criticized a federal carbon tax, saying that it would increase energy costs. Some continue to oppose it even when that revenue would be used to reduce other taxes in what’s known as a tax swap. I support the concept of a tax swap, especially one in which we tax something we don’t like (greenhouse gas emissions) so that we can reduce taxes on what we do like (businesses and middle-class families), but even that has failed to gather support in Congress. Unfortunately, too many people quickly criticize a carbon tax by using tired old talking points without looking at the details of new proposals and the offsets. A state-level excise tax should bring Republicans to the table because it is market-based, it would reduce burdensome regulation, and it would give control and revenue to the states, not the federal government. It is a pure free-market solution.

Until we can agree on such a solution, I strongly support the EPA’s actions to regulate emissions. But we can and should do better. The State’s Choice Act offers a way for states to take the lead in putting us on a path to prevent irreversible climate change in a way that is good for our economy.

John K. Delaney, a Democrat, represents Maryland’s 6th Congressional District in the House. This post originally appeared in The Washington Post.